3 ways to lower your student loan interest rate

It pays to sign up for automatic repayments.

One common student loan myth is that you’re stuck with the interest rate you get forever — especially when it comes to federal loans. But there are several ways to lower your interest rate, which can lower both the monthly and total cost of your loans. Even if none of these are options for you, there are several other ways you can save on interest.

1. Refinance your student loans.

Potential to lower your rates the most out of any option on this list

Lose federal benefits and have less flexible repayments

Refinancing can be the best way to make a significant change to your student loan interest rate. It involves taking out a new loan with another lender to pay off your current student loans. This new loan comes with different terms and rates — ideally a few percentage points lower.

This is generally a better option once you’ve established your career and built up a strong credit history. Typically, the best rates go to borrowers with credit scores above 700 and debt payments worth no more than 20% of your monthly income. But refinancing means you lose several federal benefits, including eligibility for some forgiveness programs and flexible repayment options. Consider what you’ll lose first before you apply.

Tips to get a lower rate by refinancing

Look for discounts. Some lenders — especially banks — offer loyalty discounts on your interest rate if you’re currently a customer. Others offer discounts for signing up for autopay or making so many years of on-time repayments.

Shop around. Compare offers from multiple lenders to find the best deal out there for you.

Apply with a cosigner. A cosigner with strong credit and few debts can help you qualify for an even lower rate.

Compare up to 4 providers

2. Sign up for autopay.

The easiest way to get a lower rate is to sign up for automatic repayments. Most servicers — including those for federal student loans — give you a 0.25% interest rate discount for agreeing to let them automatically deduct your monthly repayment from your bank account. With some private lenders, you might qualify for a discount as high as 0.5%.

Signing up for autopay comes with the added benefit of not having to remember to make your student loan repayments each month. But avoid paying large bills like rent before your repayment is due. If you don’t have enough money in your account, you might have to pay an NSF fee, which is usually around $25 or $35 per returned payment.

3. Pay your student loans on time.

Extra incentive to stay on top of your loans

Not available with all servicers

Some student loan servicers offer an additional 0.25% interest rate discount just for making repayments on time for a couple of years. If this is available on your loans, take care to not miss any repayments — signing up for autopay can help with this one. Not an option? Consider refinancing with a lender that does offer it.

How else can I save on interest?

If none of these options seem right for you, there are other ways to cut down on the amount of interest you pay:

Shorten your loan term. The less time you take to pay off your student loans, the less time there is for interest to add up. Consider switching your repayment plan to the shortest term you can comfortably afford.

Make extra repayments. Putting extra money like bonuses and tax refunds toward your student loan principal can help you pay off your debt faster — and therefore with less interest.

Pay off high-interest loans first. If you have multiple student loans with different rates, concentrate on repaying the highest-rate loans first to save on the overall amount you pay in interest.

Avoid deferment, forbearance and income-driven repayment plans

Deferment, forbearance and income-driven repayment plans can increase the amount of interest you pay. That’s because interest capitalizes once you start making repayments again after pausing your loans or switching plans. With interest capitalization, your servicer adds all unpaid interest to your loan balance, meaning you’ll pay interest on interest.

Bottom line

You have quite a few options to lower your interest rate — and many of them require almost no effort on your part. But you might also want to consider shortening your loan term or making extra repayments if you really want to save on the total cost of your loan.

Frequently asked questions

No, consolidating your federal loans with a Direct Consolidation Loan won’t give you a lower interest rate. Instead, it gives you a weighted average of your current federal rates. It’s designed to make sure you’ll still pay roughly the same amount in interest that you would have paid before consolidation.

You might be able to negotiate a lower rate on your private student loans if you’re struggling with repayments, but not on your federal loans. Contact your servicer and explain your financial situation. They generally don’t want you to default on your loans and may be willing to work with you.

You can qualify for a 0.25% interest rate discount when you sign up for automatic repayments — Sallie Mae calls this auto debit.

Anna Serio is a trusted loans expert who's published more than 800 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Fundera, Business.com, and ValueWalk feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.

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